Kodak Ceases Digital Camera Production

by Brandy Betz | February 10, 2012 6:00 am

Eastman Kodak (OTCQB:EKDKQ[1]) is leaving the camera production business it pioneered for over a century. The company on Thursday announced plans to shutter its digital camera operations in the first half of 2012. The move comes as Kodak attempts to recover from a steep financial slide that left it on the brink of bankruptcy.

Kodak filed for Chapter 11 bankruptcy protection last month and received $950 million in aid from Citigroup. The elimination of its digital-camera and digital picture-frame operations will lead to a charge of approximately $30 million, not including outstanding manufacturing costs. Annual operating costs will reflect savings of $100 million.

Cessation of its digital-camera production comes less than a month after Kodak presented six new devices – including cameras, camcorders, and picture frames — at the International Consumer Electronics Show. Kodak’s consumer services will continue to include printing services, which comprise nearly three-fourths of the company’s revenue. This includes the more than 100,000 Kodak printing kiosks and photo labs housed in retail locations around the world. Expansion of the company’s printing operations may be possible in overseas markets where technology is still catching up.

Realigning as a patent holder

Kodak sees digital patent licenses as its best chance for financial recovery. Kodak holds more than 1,000 digital-technology patents, some of which it has aggressively defended in recent lawsuits against HTC and Apple (NASDAQ:AAPL[2]). Stepping out of the production game allows Kodak to license its methods to a third party without either party having a conflict of interest.

This latest restructuring follows a decade of trims that weren’t enough to stop Kodak’s revenue bleed. CEO Antonio M. Perez noted on Thursday that the company has closed 13 manufacturing plants and 130,000 photo processing labs in the past nine years. Kodak once employed about 60,000 people, but by the end of 2010, its workforce had plummeted to approximately 18,800, and further layoffs are expected in coming months. Portions of the $30 million charge will cover employee benefit compensation.

Investor confidence in Kodak’s plan will be hard to gauge from the price of its stock, which has have traded over the counter since the company voluntarily left the New York Stock Exchange following the Chapter 13 announcement. The NYSE had previously threatened to force Kodak off the exchange after it failed to meet a $1-per-share minimum for more than 30 consecutive days. Pushed toward penny-stock status, Kodak was up 2.3% on Thursday afternoon, but that elevated the share price to only 43 cents.

Kodak claims it can stage a financial recovery in 2013, but it faces daunting challenges. A competitive printing market and decreasing prices of at-home photo printers make it unlikely that its consumer operations will create a financial boon. If Kodak fails to strike profitable license agreements, it may mark the end of the historic company.